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Upfront Season: It’s a Wrap

NEW YORK The title of one of the most anticipated new prime-time series this fall, the ABC dramedy Big Shots, could describe broadcast network sales executives, who have just wrapped an upfront with the nets reaping larger cost-per-thousand increases for the 2007-08 season than media agencies signaled they were willing to pay going in.

The five broadcast nets booked commitments for prime-time ads next season totaling $9.15 billion, a 4.5 percent jump from last year’s $8.75 billion. Meanwhile, ad rates ranged from an average of 5 percent to as much as 12 percent more per unit than last year, depending on the network.

Some might wonder how that could that happen, when agencies projected at the onset of negotiations that this year’s marketplace would be flat to up by only mid-single digits at best.

For one thing, the agencies underestimated how much money advertisers wanted to move back into the upfront from budgets they’d held back for scatter this season. Ironically, it was the networks’ soft ratings performance this past season that drove scatter prices up. Because of ratings underdeliveries, the networks had to offer advertisers makegoods, tightening the scatter market considerably. With less inventory to sell and demand high, the networks were able to sell scatter for as much as 50 percent more than last year’s upfront.

Not wanting to risk that scenario again, most marketers told their agencies to buy more in the upfront. The networks had more upfront dollars registered than they could accommodate. Even fourth-rated NBC had close to $250 million more in inventory registered than it wanted to sell in the upfront. So, the networks were in the driver’s seat—it became a seller’s market.

Group M, the media agency conglomerate that includes MindShare, Mediaedge:cia and MediaCom, and that controls about 30 percent of upfront dollars, recognized this early on. Rino Scanzoni, chief investment officer for Group M, had a bundle of client ad dollars to place. After three weeks of agency-network dealings but no done deals, Scanzoni decided to move. Group M’s mega-deal with NBC Universal totaled about $800 million, a buy that included not only the NBC broadcast network but also cable channels USA, Bravo and Sci-Fi, Spanish-language net Telemundo and other platforms.

When sources placed at around 5 percent the average CPM increase Group M paid NBC for its prime-time inventory, some competing agencies criticized Scanzoni for overpaying the underperforming network and setting the low bar for upfront prime-time pricing at a level most thought was 2 or 3 percentage points too high.

Now, a month after the pact, some rivals have tempered their criticism, acknowledging the market was stronger than they initially believed and that Scanzoni had to do what was best for his clients at the time.

“When Rino was negotiating just for Mediaedge, he used to be one of the last to do his upfront deals,” said one rival buyer, who, like most sources for this story, declined to speak for attribution. “But now, he is in charge of the Titanic. He has too many advertiser dollars to wait and take a chance of not getting what they want on each network. Once he realized the market was so strong, he had to start making deals. All the other networks were asking for initial increases that were way too high and wouldn’t budge. So Scanzoni chose NBC.”

Sources familiar with the Group M/NBCU negotiations said a deal was sealed because both sides were willing to compromise.

Buyers say it is unusual, but not unprecedented, to move the upfront by doing a deal with one of the lower-rated networks. “NBC is more than just NBC prime time,” one media buyer pointed out, noting the Group M deal spanned NBCU’s stable of properties. “NBC is first in almost all of the other dayparts, and its cable properties are doing well. You can’t just look at NBC prime time and what Group M paid for that.”

Scanzoni would not comment on his strategy, but sources said he was determined to set the tone of the marketplace and went to the network most amenable to doing business with him.

Scanzoni wanted the negotiating currency to be average commercial rating per show, while some agencies—Magna Global and Starcom, among others—wanted minute-by-minute commercial ratings. Scanzoni also believed that, based on research, the currency needed to include three-day DVR viewing, the so-called C3 standard. So, when NBC agreed to those terms—not only for broadcast but also for cable and syndication—Scanzoni pulled the trigger. The 7 to 8 percent rate increases Scanzoni paid for NBCU’s cable networks are holding up as negotiations between the cable nets and other agencies grind on.

“Rino took some risks and it paid off,” said one buyer. “He had a strategy and he was proactive with it. At the end of the day, he is responsible to his clients, not to the other agencies.”

Said another buyer, “At first, it seemed like Rino overpaid NBC by a few percentage points. But as the market evolved, I’m not sure now if he did. But even if he went too fast and paid a little bit more, he did what he had to do to get all his clients’ money down across all the platforms.”

Buyers acknowledge that NBC also was savvy. “ABC opened up asking for 14 percent CPM increases for prime time, and CBS and Fox were also standing fast,” said a buyer. “NBC opened asking for much lower CPMs and made it an attractive place for an agency to lay a nice base of inventory. It worked for both sides…Group M may have set the [CPM] bar a little too high, but it is also clear that advertiser demand was higher than anyone thought it would be.”

ABC was eventually able to sell its prime-time inventory for CPM increases averaging 8 to 9 percent. ABC sales president Mike Shaw said it was the net’s breadth of new shows, particularly its new dramas, that had buyers eager to do business with the network. Dramas Big Shots, Private Practice, Dirty Sexy Money and Women’s Murder Club all attracted buyer interest, he said, making packages including returning series Desperate Housewives, Grey’s Anatomy and Brothers & Sisters easy to get increases for.

“The agencies saw that the market was strong and they reacted quickly and intelligently to secure the best inventory they needed,” he said.

CBS, which got CPM increases in the 6 to 8 percent range, was able to package its slew of solid returning dramas with new drama Cane and the net’s Monday sitcom block, whose new entry, Big Bang Theory, many buyers believe will be next season’s breakout new comedy.

Fox used a strategy of doing early deals with movie studios to kickstart its upfront negotiations. The studios traditionally are willing to pay higher CPMs to get select, pre-weekend inventory. Plus, Fox had its massive American Idol inventory as an enticement.

Meanwhile, The CW—based on some strong new pilots, particularly Gossip Girl—was able to get low-double-digit CPM hikes for prime-time packages targeting young females.

ABC’s Shaw called this a “metamorphosis” year in which the industry went from program ratings to commercial ratings, and did so in an orderly fashion. Though some agencies wanted to use minute-by-minute commercial ratings rather than average commercial rating per show, the former simply was not feasible, Shaw said—and may never be, because programming never ends on an exact minute. Thus, minute-by-minute ratings would not be pure commercial-minute ratings.

Nielsen Media Research—whose parent, the Nielsen Co., also owns Adweek Media, encompassing Adweek, Brandweek and Mediaweek—does not currently measure second-by-second. And even if it did, ABC’s Shaw said, that’s not something he’s interested in doing deals around. “I don’t know if I want to get into selling based on positioning in every pod for every show,” he said. “Advertiser rotation is much fairer and more equitable and easier to sell. I believe the average commercial rating per show is going to be the currency negotiations are based on going forward.”

If the broadcast upfront wrapped with a certain measure of expedience, an early surge by cable has given way to a much more deliberately paced market. As of July 5, only Lifetime had completed nearly all its upfront transactions, while the industry as a whole had booked just 30 to 35 percent of its total projected sales.

Early deals by NBCU’s cable nets as well as Turner and Discovery seemed to herald a fast and furious market, as the currency issues of late spring were all but put to rest once sales execs agreed to accept the C3 standard, offering guarantees based on average commercial ratings plus three days of DVR playback.

Even MTV Networks, seen as a likely holdout for cutting deals based on the traditional metric, has been far more flexible in negotiations with buyers, writing a mix of C3 and program ratings. “MTV is approaching this in a very reasonable way,” said one buyer. “Even though the marketplace has established that there may be less value to their ratings points because of their retention issues, they’ve been willing to go along [with C3] to a certain extent, because they hold all the young demo cards.”

But consensus hasn’t been enough to supercharge the market, as both buyers and sellers report there’s no rush to get business done ahead of any particular deadline. “It’s going along at the pace it needs to go,” said one buyer, adding that this year’s bazaar has been complicated by an inventory squeeze brought on by the move to commercial ratings. “Even if you’re getting 10 percent CPM increases, once you factor in the conversion, you’re looking anywhere from slightly down to flat to slightly up,” the buyer said.

On the whole, cable experiences an average churn rate of 10 percent during commercial pods, per a Magna Global study. Nets like Court TV, Lifetime and TLC lose the smallest percentage of viewers (4 to 5 percent). Broadcast drops about 7 percent of its audience during ad breaks, while syndication is stickiest, retaining all but 2 percent of viewers.

At the high end of the market, Turner has secured CPM increases of 8 to 12 percent, although the average cable network haul will likely be closer to a 6 to 9 percent hike. That’s about what A&E Networks has procured thus far, with just over half of its upfront business wrapped up.

Analysts project cable will increase its overall upfront take by 3 to 4 percent above last year’s estimated $7.31 billion, thanks in large part to a scatter market that shows no sign of slowing down and the twin portents of the upcoming presidential election and 2008 Olympics. Merrill Lynch analyst Jessica Reif Cohen anticipates a 3 percent bump, to $7.53 billion.

While a great many deals will have to close before the cable upfront can be fixed in amber, insiders say that 2007 is already one for the books.

“There’s a tendency among some people on our side of the desk to get punitive, and that’s a mistake,” said one buyer. “We pushed, but there’s nothing punitive…The networks are now incentivized to retain viewers, and that’s good for everyone.”

The syndication upfront was close to completion last week, with the market expected to reap $2.26 billion, up some 3 percent over last year.

CPM increases vary from flat for some of the lower-rated off-network sitcoms to high-single-digit increases for the more popular daytime talk shows, including The Oprah Winfrey Show, Dr. Phil, Live with Regis and Kelly and Ellen, among others. Court shows and entertainment newsmagazines got mid-single-digit CPM bumps, while higher-rated off-network sitcoms got price hikes in the 3 to 5 percent range.

Among new shows drawing buyer interest are Warner Bros. Domestic Television Distribution newsmagazine TMZ, which got some prime- access clearances on key Fox affiliates; game show Temptation and talker Mike and Juliet, both from Twentieth Television, and The Steve Wilkos Show from NBC Universal Domestic Television Distribution. Off-network shows Two and a Half Men from Warner Bros. and Law & Order: Criminal Intent from NBCU also are hot with buyers.

Syndication sales executives believe the market was helped by the conversion to commercial ratings as a negotiating currency, since many syndicated strips have fewer and smaller commercial pods than broadcast or cable, potentially boosting viewer retention.